TaxTMI 
TaxTMI 
2023 (10) TMI 280
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....ner, in short, are as follows: IFGL Exports Ltd. was incorporated on 7th September, 2007, which established its unit on May, 2012, at Kandla Special Economic Zone, Gujarat, for manufacture of specialized refractories and commenced operations from May, 2012 and IFGL Exports Ltd. allegedly became eligible for claiming exemption under Section 10AA of the Income Tax Act, 1961, from the Assessment Year 2013-14 onwards. Letter of approval was issued by the Development Commissioner, Kandla Speical Economic Zone to IFGL Exports Ltd. 7th November, 2007, for extending all the facilities and entitlements admissible to its unit established at Kandla Special Economic Zone, Gujarat, subject to the provisions of the Special Economic Zones Act, 2005. Letters of approval were issued from time to time by the Development Commissioner, Kandla Special Economic Zone to IFGL Exports Ltd. for extending the validity of the approval granted by letter dated 07.11.2007, to its unit established in new area of Kandla Special Economic Zone, Gujarat. Effective date of amalgamation of the petitioner/IFGL Refractories Ltd. with IFGL Exports Ltd. pursuant to sanction Scheme of Amalgamation by the National C....
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....its profits and gains without aggregation of the incomes under other heads and the provisions for set off and carry forward contained in Sections 70, 72 and 74 of the Act, i.e. without first doing any inter unit profit/loss adjustments or set off of brought forward losses and the stage of claiming exemption while computing the gross total income of the eligible undertaking under Chapter IV of the Income Tax Act, 1961, i.e. in conformity with the settled law as laid by the Hon'ble Supreme Court in the cases of Yokogawa (supra). However, the Finance Act, 2017, inserted the following Explanation after Section 10AA(1) of the Income Tax Act, 1961, w.e.f. 01.04.2018, is as follows: "Explanation .- For the removal of doubts, it is hereby declared that the amount of deduction under this section shall be allowed from the total income of the assessee computed in accordance with the provisions of this Act, before giving effect to the provisions of this Section and the deduction under this Section shall be allowed from the total income of the assessee computed in accordance with the provisions of this Act, before giving effect to the provisions of this Section and the deduction under ....
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.... statutory provision has to be read with the main provision to which it is added as an Explanation. An Explanation appended to a section or a sub-section becomes an integral part of it and it has no independent existence apart from it. The purpose of an Explanation is not to limit the scope of the main section and it cannot override what the main Section provides. Therefore, the Explanation inserted to Section 10AA(1) of the Income Tax Act, 1961, w.e.f 01.04.2018, cannot override what Section 10AA(1) of the Income Tax Act, 1961 provides for and cannot limit the scope of section 10AA(1) of the Income Tax Act, 1961. The said Explanation has to be read along with Section 10AA(1) of the Income Tax Act, 1961 and has no independent existence of its own. Petitioner submits that the Explanation inserted to Section 10AA(1) of the Income Tax Act, 1961 denies the benefit otherwise available as per Section 10AA(1) of the Income Tax Act, 1961 and is thus nugatory as the whole purpose of giving tax incentive to eligible units situated in special economic zones as per Section 10AA of the Income Tax Act, 1961 stands defeated and frustrated by the said Explanation introduced by the Finance Act, ....
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....s where the view reflected in the legislation would not be possible to be taken at all. When it comes to taxing statutes, the law laid down is clear that it can be said to be a breach only when there is perversity or gross disparity resulting in clear and hostile discrimination without any rational justification for the same, as laid down in State of Himachal Pradesh -vs- Goel Bus Services, reported at 2023 SCC OnLine SC 46, (paragraphs 27-30). Respondent submits that in the instant case, there was no such hostile discrimination or perversity in the impugned legislation. Consequent to the interpretation of Section 10A of the Act, in Commissioner of Income Tax -vs- Yokogawa India Ltd., reported at [2017] 391 ITR 274 (SC), there was a possibility of vagueness in interpretation of the dominant object of Section 10AA of the Act, and to remove such vagueness, the legislature deemed it fit to insert the Explanation to Sub Section (1) of Section 10AA of the Act. This was done in order to suppress the mischief in interpreting the Section 10AA of the Act as has been done by the assessee herein, and such clarification was for the purpose of interpreting the aforesaid section in the way th....
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....d with IFGL Refractories Ltd./petitioner, which had a loss-making unit, and the new entity was called IFGL Refractories Ltd./petitioner. The new entity had 2 units, one eligible unit in Kandla SEZ, Gujarat, and one ineligible unit in Kalunga Industrial Estate, Odisha. Respondents submit that the ineligible unit was brought in solely to take advantage of its loss-making status. The assessee/petitioner through deliberate misinterpretation of Section 10AA of the Act would add the losses from the ineligible unit and bring down the total taxable income, and then take deduction under Section 10AA of the Act to further reduce taxable income. This sort of tax evasion was not the intended object behind the provision. The legislature had to bring in the Explanation to Section 10AA of the Act to prevent such tax evasion and to specify that the deduction was available only on the total profits of the 2 units combined, and not only the profit-making unit. Respondents submit that the intention of the legislature in inserting the Explanation to Section 10AA of the Act is evident from paragraph numbers 15.2 and 15.3 of the CBDT Circular No. 3 of 2008, dated 12th March, 2008, in [2008] 299 IT....
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....te expectation, and if the legislature stops this tax evasion through a clarifactory explanation, then that cannot be said to be arbitrary or perverse. Respondents submit that in paragraph 73 of judgment in KB Tea (supra), it has been held in point VII that the expectation sought to be protected by judicial review must be based on a legitimate interest. In paragraph 44 of Sivanandan (supra), it has been held that the individual who claims the violation of legitimate expectation must establish the legitimacy of the expectation first. Here, there is no legitimate expectation on the part of the assessee, since its sole motive of challenging the Explanation inserted is to continue evading tax by deliberately misinterpreting the scope of Section 10AA of the Act. It has been held in Sivanandan (supra) at paragraph 36 therein, that legitimate expectation cannot hinder the power of a public authority in its policy making role, which forms the basis of the law making functions of the legislature. The legislature has to take into consideration diverse factors, concerns and interest before making any policy decision or legislation. This has also been the opinion of the Hon'ble Apex Cour....
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....x legislation may not be easily interfered with. The Courts must show judicial restraint to interfere with tax legislation unless it is shown and proved that such taxing statute is manifestly unjust or glaringly unconstitutional. Taxing statutes cannot be placed or tested or viewed on the same principles as laws affecting civil rights such as freedom of speech, religion, etc. The test of taxing statutes would be viewed on more stringent tests and the law makers should be given greater latitude. It would be useful to refer to a couple of judgments on the above proposition. 28. In the case of R.K. Garg etc. vs. Union of India and others, (1981) 4 SCC 675, the Constitution Bench was judging the constitutionality of economic legislation wherein challenge was to the validity of the provisions of Special Bearer Bonds (Immunities and Exemption Act, 1981) on the grounds of discrimination and violation of Article 14. P.N. Bhagwati J., speaking for himself, Chief Justice Chandrachud, A.C. Gupta, S. Murtaza Fazal Ali and A.N. Sen, J.J., observed in paragraph 7 regarding the presumption in favour of constitutionality of the statute and that the burden is on the person who attacks it, ....
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....nal justification for the same." Respondents have relied on the relevant paragraph nos. 36 and 44 of the judgment in the case of Sivanandan C T & Ors. -vs- High Court of Kerala & Ors being Writ Petition (Civil) No. 229 of 2017 reported in 2023 INSC 709 which are quoted hereunder: "36. The doctrine of legitimate expectation does not impede or hinder the power of the public authorities to lay down a policy or withdraw it. The public authority has the discretion to exercise the full range of choices available within its executive power. The public authority often has to take into consideration diverse factors, concerns, and interests before arriving at a particular policy decision. The courts are generally cautious in interfering with a bona fide decision of public authorities which denies a legitimate expectation provided such a decision is taken in the larger public interest. Thus, public interest serves as a limitation on the application of the doctrine of legitimate expectation. Courts have to determine whether the public interest is compelling and sufficient to outweigh the legitimate expectation of the claimant. While performing a balancing exercise, courts have to o....
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....g an implied representation, or from consistent past practice. The doctrine of legitimate expectation has an important place in the developing law of judicial review. It is, however, not necessary to explore the doctrine in this case, it is enough merely to note that a legitimate expectation can provide a sufficient interest to enable one who cannot point to the existence of a substantive right to obtain the leave of the court to apply for judicial review. It is generally agreed that 'legitimate expectation' gives the applicant sufficient locus standi for judicial review and that the doctrine of legitimate expectation to be confined mostly to right of a fair hearing before a decision which results in negativing a promise or withdrawing an undertaking is taken. The doctrine does not give scope to claim relief straightway from the administrative authorities as no crystallized right as such is involved. The protection of such legitimate expectation does not require the fulfillment of the expectation where an overriding public interest requires otherwise. In other words, where a person's legitimate expectation is not fulfilled by taking a particular decision then the decisi....
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....e judgments of this Court on the issue would reveal that it is a consistent view of this Court, reiterated again in Godfrey Philips, that there can be no promissory estoppel against the legislature in the exercise of its legislative functions. 69. Undisputedly, the Notification dated 18th July 2017 withdrawing the exemption notifications was issued in pursuance of the statutory mandate as provided under Section 174(2)(c) of the CGST Act. If the contention as raised by the appellants is to be accepted, it would make the provisions under the proviso to Section 174(2)(c) of the CGST Act redundant and otiose. The legislature in its wisdom has specifically incorporated the proviso to Section 174(2)(c) providing therein that any tax exemption granted as an incentive against investment through a notification shall not continue as privilege if the said notification is rescinded. If the contention is accepted, it will amount to enforcing a representation made in the said O.M. of 2003 and 2003 Notification contrary to the legislative incorporation in the proviso to Section 174(2)(c) of the CGST Act. In other words, it will permit an estoppel to be operated against the legislative fu....
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....ted right" but a case of "existing right", which can be varied or modified and/or withdrawn. In the present case, as per amendment in the definition contained in Section 2(17) of the Act, 1994 w.e.f. 01.08.2001 by which "tea blending" activity is excluded from the definition of "manufacture" and therefore, on and from that day itself, the appellants ceased to be the manufacturers and shall not be entitled to the benefit of exemption from payment of sales tax as was available to them as manufacturers." Respondents have relied on the relevant paragraph no. 17 of the judgment in the case of Sedco Forex International Drill. Inc. & Ors. -Vs- Commissioner of Income Tax, Dehradun & Anr. reported in (2005) 12 Supreme Court Cases 717 which is quoted hereunder: "17. As was affirmed by this Court in Goslino Mario (supra), a cardinal principle of the tax law is that the law to be applied is that which is in force in the relevant assessment year unless otherwise provided expressly or by necessary implication. [See also Reliance Jute and Industries vs. CIT ]. An Explanation to a statutory provision may fulfil the purpose of clearing up an ambiguity in the main provision or an Explana....
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.... the Act can confer jurisdiction upon the Court with retrospective effect and validate the past transactions which were declared to be unconstitutional. The legislature cannot assume power of adjudicating a case by virtue of its enactment of the law without leaving it to the judiciary to decide it with reference to the law in force. The legislature also is incompetent to overrule the decision of a Court without properly removing the base on which the judgment is founded." "56. From a resume of the above decisions the following principles would emerge: [1] The adjudication of the rights of the parties is the essential judicial function. Legislature has to lay down the norms of conduct or rules which will govern the parties and the transaction and require the court to give effect to them; [2] The Constitution delineated delicate balance in the exercise of the sovereign power by the Legislature, Executive and Judiciary; [3] In a democracy governed by rule of law, the Legislature exercises the power under Articles 245 and 246 and other companion Articles read with the entries in the respective Lists in the Seventh Schedule to make the law which inclu....